All posts tagged Spanish banking

Bankia, once Spain’s fourth-largest bank and now a nationalized penny stock, Wednesday presented a four-year strategic plan that has plenty of numbers but lacks responses to some burning questions.

Bankia’s plan seeks to make the bank profitable from next year, to the extent that it is targeting net profits of €1.2 billion in 2015. This is not spare change for a lender that expects €19 billion worth of losses this year and will receive a total of €17.96 billion worth of state aid—the biggest such injection ever received by a Spanish bank and more than twice the size of the country’s annual defense budget.

Meanwhile, Spain’s courts are crammed with lawsuits attempting to determine how the bank got itself into this mess and who, if anyone, was responsible for it all. Thousands of shareholders who bought stock at an initial public offering last year and many more retail investors are looking for answers.

Among those being questioned by Spanish judges: Rodrigo Rato, formerly Spain’s Finance Minister, International Monetary Fund managing director and, most importantly, Bankia Chairman until he was forced to resign his position in May.

The Bank of Spain has just twisted the arm of the country’s small and savings banks by telling them they will have to recognize losses faster and take bigger provisions on real estate assets they’ve acquired.

As one banker at a small regional bank said: “This is the regulator telling the weaklings in the system that enough is enough, time is up, merge now.”

The two-page proposal takes a stab at two issues that have caused considerable nervousness among investors. It forces banks to be more upfront about loan losses, and it presses the weakest banks, who were already struggling to make a profit, into wrapping up merger talks.

It’s one of the most important pieces of regulation of Spanish banks in years…

The euro’s guardians hope a show of solidarity and robust debt cutting will one day allow markets to accept that such disparate nations as Germany and Greece can indeed share a currency.

But it’s going to be a big ask, even with the European Union’s heavy guns deployed at last. There is now a top-level task force on economic governance, no less, trying to enforce fiscal discipline. It met last Friday for the first time. Not a moment too soon, you might think. Let’s hope it knows that the common European tactic of promising budget cuts, for which the time never actually ripens, just won’t do this time.

Delivery will be all if the bond markets are going to play.

According to reports, Germany is planning to lop €10 billion a year off its budget from now until 2016, to set an example for the rest of the euro zone; in other words it’s expecting everyone else to follow suit. Belt tightening all round.

Bloomberg

Unfortunately, though, the fissures between northern and southern Europe, prudence and profligacy, yawn very widely, and not just those running through State budgets.

As the corporate earnings season winds down, there is cause for some optimism on the face of things. Bottom-line sales improvements have been seen in Europe, as they were in the U.S.; profits have sprung from more than just brutal cost cutting, just about their only source through the darkest days of financial crisis. This is a very good thing.

But, surprise surprise, the picture is very uneven geographically. While corporate Germany, Netherlands, Sweden and Denmark have put in strong performances, Ireland, Italy and Portugal have been distinctly disappointing and Spain very average. The message is clear: the weaker states are also home to the weaker corporates.